News: Mortgages With Lower Interest Rates Could Drive Home Purchases

Mar 15, 2019

It would be beneficial for first-time home buyers if financial institutions slash interest rates for residential mortgages, reported The New Straits Times.

Cheaper interest rates could spur more people to enter the property market, and this could ultimately alleviate the supply glut of properties in the country, according to Zerin Properties CEO and Founder Previndran Singhe.

“Demand of real estate is impacted by interest rates as a proxy to liquidity. Cheaper loans would create more fund affordability and availability in the market, spurring it further.”

“Fundamentally, home-ownership has been the key to wealth accumulation and social upgrade of the population,” he said during the International Conference on Greater Kuala Lumpur and Putrajaya last month.

He said Bank Negara Malaysia (BNM) did the right thing by reducing the interest rates to 3.5%for housing loans involving properties costing up to RM150,000. However, this had failed to tackle the supply glut and boost the ownership of affordable homes.

Singhe think that even if the interest rates are significantly reduced to 1 to 2%, lenders will still be making a profit.

“At present, developers, contractors and consultants take the brunt of providing low-cost houses. Banks, whose clients are developers, do not. We are suggesting that government-linked company (GLC) banks making RM5 billion to RM6 billion a year allocate, say about RM500 million of the profit, to a fund from which loans are given out to first-time buyers of properties below RM500,000.”

“I am not asking all banks to do it… just the two giants who recorded above RM5billion profits. This would help the ecosystem get healthy,” noted Previndran.

During a panel discussion, he said pricey mortgages are one of the key reasons for the slow demand for residential properties.

“Demand has not picked up. One of the biggest problems started in 2016, when BNM introduced responsible lending guidelines. The quality of loans got better, but it was too hard a landing for the developers. Rejection rates for housing loans got higher. That’s because banks charge loans at 5 to 6%.”

“We’re not asking the banks to give interest-free loans, but there has to be a balance… they are responsible to affordable housing as well. Cheap loans may lead to a drop in rejection rates,” he added.